Sewon Corporation Co.,Ltd.'s (KOSDAQ:024830) Price Is Right But Growth Is Lacking After Shares Rocket 32%

The Sewon Corporation Co.,Ltd. (KOSDAQ:024830) share price has done very well over the last month, posting an excellent gain of 32%. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Sewon CorporationLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 3.6x, since almost half of all companies in Korea have P/E ratios greater than 12x and even P/E's higher than 24x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Sewon CorporationLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Sewon CorporationLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sewon CorporationLtd's earnings, revenue and cash flow.

Is There Any Growth For Sewon CorporationLtd?

Sewon CorporationLtd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 47%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 20% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 34% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that Sewon CorporationLtd's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

Shares in Sewon CorporationLtd are going to need a lot more upward momentum to get the company's P/E out of its slump. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Sewon CorporationLtd maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Sewon CorporationLtd (1 doesn't sit too well with us!) that you need to take into consideration.

You might be able to find a better investment than Sewon CorporationLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.